According to a report by blockchain analytics firm Chainalysis, 2022 was the worst year on record for cryptocurrency hacks, with thieves making off with $3.8 billion. When compared to 2021’s projections of $3.3 billion, this is a significant increase. Most cryptocurrency were compromised in a single month in October, with $775.7 million lost across 32 distinct incidents.
Cryptocurrency hacks had the most impact on decentralised finance protocols, also known as DeFi protocols. In 2022, hackers stole over $3.1 billion worth of crypto, 82% of which was from DeFi protocols. These protocols are made up of smart contracts, which are publicly available sets of instructions that allow users to borrow, lend, or make transactions without the need for an intermediary and contain codes that dictate how virtual currency can be used on a blockchain network.
Most of the stolen money was taken from cross-chain bridge applications. These programmes let users move their digital currency between blockchains. Because users deposit digital assets into smart contracts on cross-chain bridges before sending them to a different blockchain, these nodes can become convenient centralised storage targets for hackers.
Investors should do their due diligence when it comes to the software they want to use to store or transfer their virtual money in order to protect themselves from the threat of hacking. There are a variety of virtual wallets available for storing crypto and protecting it from online threats, but it’s up to the individual to decide which wallet best suits their needs.
Traditional financial institution security practises, such as testing protocols with simulated attacks, closely monitoring the blockchain for suspicious activity, and building processes to halt transactions if suspicious activity is detected, can be adopted by DeFi developers to improve the security of their platforms. The analysis from Chainalysis stresses the importance of increased security for the expansion, success, and eventual widespread adoption of the DeFi ecosystem.
In conclusion, 2022 saw a dramatic rise in cryptocurrency attacks, with DeFi protocols taking the most impact. Investors and DeFi developers alike can take precautions to safeguard their crypto holdings and forestall future hacks by performing comprehensive research and vetting of software, employing virtual wallets, and embracing better security procedures.